The unveiling of Iraq’s Integrated National Energy Strategy (INES) in June 2013 led by Thamir Ghadhban, former oil minister and head of the prime minister’s advisory committee, has renewed hopes that the government is committed to tackling the country’s power crisis. But with an estimated $90bn-worth of investment required, the plan also illustrates the scale of the challenge facing the Electricity Ministry.

Despite Iraq having the fourth-largest conventional oil reserves in the world, its power facilities, like much of its infrastructure, are dilapidated and in urgent need of development. More than two decades of war, sanctions and underinvestment have caused significant damage to the plants. At the same time, the disrepair of the country’s pipeline network and gas processing facilities has meant fuel supplies to power stations are often erratic and sometimes entirely absent.

Power supply shortfall

As a result, Iraq’s generation capacity in 2012 was only 7,850MW, with net electricity delivered to consumers estimated to be about 7,000MW due to losses through damaged transmission and distribution networks. With peak demand estimated at 16,000MW this year, it is vital that new facilities are built to meet growing demand.

In addition to affecting the living standards of Iraqis, the power shortages are having a severe impact on the country’s development, with the total cost to the economy estimated at more than $40bn a year.

The power component of INES builds on the recommendations laid out in the Iraq Electricity Masterplan, which was financed by the US government’s Iraq Transition Assistance Office and completed by US consultant Parsons Brinckerhoff for the Electricity Ministry in 2010. The masterplan forecast that the required investment in developing the sector between 2012 and 2030 would be $75bn. The INES document, however, outlines an even higher level of investment in this period, predicting total capital expenditure of $90bn on power schemes.

We hope the Iraqi government realises the benefits of getting private companies to develop power plants

Source from foreign developer active in the region

Due to the urgent need for additional capacity, the ministry has formulated a short-term development plan to invest $22.5bn in 2012-17 to address the electricity shortage. Under the programme, it plans to add 22,000MW of new capacity by 2017 through building 40 new plants at a total cost of about $4.5bn a year.

Despite initial setbacks, the Electricity Ministry has made progress in awarding contracts. Deals for more than 15,000MW of new capacity have been inked since 2009, with more than 12,000MW of this involving gas-turbine power facilities. These include four plants with capacities of more than 1,000MW: the 1,250MW Shat al-Basra facility; the 1,500MW Rumalia plant; and the 1,250MW Khairat unit, (all signed in 2011), as well as the 1,014MW Baiji contract awarded to Egypt’s Orascom Construction Industries in 2012.

Firms involved in the programme have been impressed with the ministry’s progress in awarding schemes, although delays in the commissioning of some of the capacity is expected. “The Electricity Ministry has done a good job in awarding contracts for the projects,” says a source at an international firm working in Iraq’s power sector. “But delays in negotiations and finalising contracts will mean some projects are late.”

Upgrading power plants

In addition to building new power plants, the ministry has set a target of boosting capacity at existing facilities by 4,000MW between 2013 and 2017 by converting simple-cycle plants to combined-cycle gas turbines (CCGT).

While the short-term generation programme is planned to help electricity supply catch up with demand by the end of 2016, Iraq’s population and economy will continue to grow and will require additional capacity over the next 20 years. In the 2010 masterplan, load forecasts for the period between 2010 and 2030 cover base-case and high-case scenarios. The base case estimates that demand will rise to almost 32,000MW in 2030. The high-case scenario projects consumption of 45,000MW in 2030.

The Kurdish model is working well; the majority of its power capacity has come through IPPs

International developer based in Dubai

The ministry estimated that the total investment required by 2030 in Iraq’s power generation sector would be $35bn. While international contractors have already been enlisted to assist with the ambitious programme, developers hope the government can also revive its previously unsuccessful independent power project (IPP) programme.

“We are keeping an eye on Iraq,” says a source from a large foreign developer active in the region. “It is an interesting market that will offer a lot of opportunities to the power industry. We hope the government realises the benefits of getting private firms to develop power plants.”

The first attempt to kick-start an IPP programme in Iraq was made in 2003, when bids were invited for five schemes and power purchase agreements were signed with developers. However, the projects proved impossible to finance due to growing security problems and a general lack of support from banks and other financiers for Baghdad’s infrastructure plans.

Independent power project delay

The IPP plan was revived in 2008, when IPA Energy & Water Economics, a division of Beirut-based Dar al-Handasah (Shair & Partners), was appointed to act as adviser to the Electricity Ministry. IPA produced a strategy paper in September 2009, which was approved by the cabinet in February 2010. Final transaction documents were provided to bidders in December 2010. However, in June 2011, the bidding round was cancelled and the ministry said it was restructuring the IPP programme.

Moving into September 2013, there has been no further official updates or announcements on any IPP schemes. Developers are hopeful that recommendations in INES to introduce private participation in the electricity sector will kick-start a new programme. INES says IPPs should be introduced sequentially in phases, starting with a small plant of 200-400MW in order to reduce capital costs and implementation time, while Baghdad learns the best way to procure and manage the private projects.

“We hope the government will follow the INES recommendations and look at IPPs again,” says the international developer.

After decades of underinvestment and war damage, Iraq’s transmission and distribution (T&D) networks are also in urgent need of repair and expansion. Damaged infrastructure and lack of maintenance in the grid system are frequently a cause of blackouts. As part of its long-term masterplan, the Electricity Ministry has set out investment targets of $10bn for the transmission sector and $30bn for building distribution infrastructure by 2030.

A handful of major contracts have already been awarded to international firms in 2013 for major T&D schemes. In April, India’s Avantha Group was awarded a $60m deal to build four high-voltage substations. In June, the Electricity Ministry confirmed it had awarded Turkey’s Metash a $48m contract to supply more than 3,000 transmission towers.

In an effort to devise a comprehensive plan to develop the distribution network, in August 2013, the ministry invited local and international companies to submit expressions of interest for a deal to develop a reform strategy. The winner of the contract will provide an outline for the future development of Iraq’s power distribution sector and examine its possible privatisation. The Electricity Ministry is being supported in this venture by the Public-Private Infrastructure Advisory Facility, a multi-donor trust fund that provides technical assistance to governments in infrastructure development.

Renewable energy also features in Iraq’s power plans. The government has set a target for alternative energy to contribute 4 per cent of total generation by 2030, equating to 1,300MW. Proposals include the construction of 10-20 solar parks.

The ministry is planning to oversee the development of 400MW of solar and wind energy by 2016. The programme is scheduled to be implemented in phases. The first stage will involve building 1-10MW solar and wind facilities in remote off-grid areas, with a total of 50MW of capacity procured through initial small-scale plants. The second phase will involve photovoltaic solar plants of 10-40MW capacity, which will be connected to the grid. This phase will procure a total capacity of 75-100MW. The third stage will comprise on-grid concentrated solar power projects of 10-30MW.

Iraq has a huge task ahead of it. While the Electricity Ministry has made progress with awarding several major contracts in the past three years, many areas of the country still receive power for less than 10 hours a day, while demand continues to increase.

Emulating Kurdistan

Executives in the region’s power sector feel Baghdad could learn from the success of Iraq’s semi-autonomous northern region of Kurdistan, which has fared much better in boosting electricity supplies by building up generation capacity. This has mainly been achieved through deals with private developers. In less than a decade, the region’s available power capacity has surged 10-fold to reach an estimated 2,750MW in mid-2012, largely as a result of a successful IPP programme.

“The Kurdish model is working well,” says an international developer based in Dubai. “The majority of its power capacity has come through IPPs and this has enabled the region to execute important schemes quickly and meet demand.”

The launch of INES and the award of major contracts show Baghdad is serious about solving Iraq’s current power crisis. However, as demand for electricity continues to grow, it may be time for the government to enlist the help of the private sector to ensure it can deliver the capacity required.